LAUNCH MEDIA INC, 10-Q, 2000-08-11

LAUNCH MEDIA INC
10-Q, 2000-08-11
COMMUNICATIONS SERVICES, NEC

Previous: ROANOKE TECHNOLOGY CORP, 10-12G/A, 2000-08-11

Next: LAUNCH MEDIA INC, 10-Q, EX-27, 2000-08-11

<PAGE> 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 000-25723

LAUNCH MEDIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 95-4465753
(STATE OR JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

2700 PENNSYLVANIA AVENUE
SANTA MONICA, CALIFORNIA 940404
(Address of principal executive offices)
TELEPHONE: (310) 526-4300

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

COMMON STOCK, PAR VALUE OF $0.001 PER SHARE, 13,561,790 SHARES
OUTSTANDING AS OF JULY 31, 2000.

================================================================================

<PAGE> 2

LAUNCH MEDIA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1999 and June 30, 2000 (unaudited) 1
Consolidated Statements of Operations and Comprehensive Loss for the
Three and Six Months Ended June 30, 1999 and 2000 (unaudited) 2
Consolidated Statements of Cash Flows for the
Three and Six Months Ended June 30, 1999 and 2000 (unaudited) 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8K 25
Signatures 27
Exhibit 27 Financial Data Schedule 28
</TABLE>

<PAGE> 3

LAUNCH MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, June 30,
1999 2000
------------- -------------
(UNAUDITED)
ASSETS:
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 878,000 $ 3,780,000
Short-term investments ..................................... 55,007,000 36,244,000
Current Securities available for sale ...................... 1,684,000 530,000
Accounts receivable ........................................ 4,027,000 5,871,000
Inventory .................................................. 273,000 369,000
Prepaid and other current assets ........................... 2,293,000 2,848,000
------------- -------------
Total current assets ............................... 64,162,000 49,642,000

Property and equipment, net .................................. 7,404,000 9,936,000
Intangible and other assets .................................. 22,652,000 24,909,000
------------- -------------
Total assets ....................................... $ 94,218,000 $ 84,487,000
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable ........................................... $ 2,767,000 $ 4,216,000
Accrued expenses ........................................... 2,357,000 5,171,000
Deferred revenue ........................................... 1,197,000 172,000
Notes payable, current portion ............................. 60,000 574,000
Capital lease obligations, current portion ................. 796,000 881,000
------------- -------------
Total current liabilities .......................... 7,177,000 11,014,000

Notes payable, net of current portion ........................ 160,000 1,138,000
Capital lease obligations, net of current portion ............ 839,000 855,000
------------- -------------
Total liabilities .................................. 8,176,000 13,007,000
------------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, shares authorized
75,000,000; shares issued and outstanding,
12,849,686 (1999) and 13,550,280 (2000) ................. 13,000 14,000
Additional paid-in capital ................................. 151,221,000 161,552,000
Other comprehensive income ................................. 684,000 (190,000)
Unearned compensation ...................................... (765,000) (652,000)
Accumulated deficit ........................................ (65,111,000) (89,244,000)
------------- -------------
Total stockholders' equity ......................... 86,042,000 71,480,000
------------- -------------
Total liabilities and stockholders' equity ......... $ 94,218,000 $ 84,487,000
============= =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

1
<PAGE> 4

LAUNCH MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
Advertising and transaction fees .............. $ 1,852,000 $ 5,064,000 $ 2,563,000 $ 8,769,000
Content licensing ............................. 1,350,000 2,210,000 1,350,000 4,386,000
Subscription and other ........................ 280,000 547,000 817,000 1,099,000
------------ ------------ ------------ ------------
3,482,000 7,821,000 4,730,000 14,254,000
Operating expenses:
Cost of revenues ............................... 827,000 1,314,000 1,478,000 2,447,000
Sales and marketing ............................ 5,720,000 7,959,000 8,550,000 15,460,000
Content and product development ................ 2,637,000 4,684,000 3,952,000 9,377,000
General and administrative ..................... 1,020,000 2,391,000 1,620,000 4,582,000
Depreciation and amortization .................. 2,121,000 4,196,000 2,724,000 8,166,000
------------ ------------ ------------ ------------
Loss from operations ........................... (8,843,000) (12,723,000) (13,594,000) (25,778,000)
Interest income and other, net ................... 265,000 484,000 285,000 1,651,000
------------ ------------ ------------ ------------
Loss before provision for income taxes ......... (8,578,000) (12,239,000) (13,309,000) (24,127,000)
Provision for income taxes ....................... 2,000 -- 12,000 6,000
------------ ------------ ------------ ------------
Net loss ....................................... (8,580,000) (12,239,000) (13,321,000) (24,133,000)
Accretion of mandatory redeemable convertible
preferred stock ................................ (150,000) -- (765,000) --
------------ ------------ ------------ ------------
Net loss attributable to common stockholders ... $ (8,730,000) $(12,239,000) $(14,086,000 $(24,133,000)
============ ============ ============ ============
Basic and diluted net loss per common share ...... $ (0.87) $ (0.91) $ (2.49) $ (1.79)
============ ============ ============ ============
Weighted average shares outstanding used in per
share calculation .............................. 10,015,000 13,514,000 5,652,000 13,455,000
============ ============ ============ ============
Comprehensive loss:
Net loss ......................................... $ (8,580,000) $(12,239,000) $(13,321,000) $(24,133,000)
Other comprehensive income:
Unrealized loss on securities available for
sale ........................................ -- (165,000) -- (546,000)
------------ ------------ ------------ ------------
Comprehensive loss ............................... $ (8,580,000) $(12,404,000) $(13,321,000) $(24,679,000)
============ ============ ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

2
<PAGE> 5

LAUNCH MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................... $(13,321,000) $(24,133,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................. 2,985,000 8,168,000
Non-cash charges for issuance of equity securities ........ 723,000 --
Allowance for sales returns ............................... (107,000) 101,000
Amortization of deferred compensation ..................... 243,000 113,000
Gain on sale of securities ................................ -- (488,000)
Changes in operating assets and liabilities:
Increase in accounts receivable ......................... (1,748,000) (1,916,000)
Increase in inventory ................................... (183,000) (96,000)
Increase in prepaid and other current assets ............ (1,314,000) (323,000)
Increase in accounts payable ............................ 1,724,000 1,447,000
Increase in accrued expenses ............................ 1,157,000 2,296,000
Increase (decrease) in deferred revenue ................. 2,234,000 (1,025,000)
------------ ------------
Net cash used in operating activities ................ (7,607,000) (15,856,000)
------------ ------------
Cash flows from investing activities:
Increase in short-term investments .......................... -- (200,000)
Purchases of property and equipment ......................... (387,000) (3,093,000)
Purchases of securities ..................................... (79,654,000) (37,428,000)
Maturities of securities .................................... 4,993,000 59,688,000
Decrease (increase) in other assets ......................... (57,000) (181,000)
Proceeds from sale of securities ............................ -- 968,000
Acquisition of businesses ................................... (302,000) (984,000)
------------ ------------
Net cash provided by (used in) investing
activities ......................................... (75,407,000) 18,770,000
------------ ------------
Cash flows from financing activities:
Payments under capital lease obligations .................... (137,000) (445,000)
Payments under notes payable ................................ (10,000) (126,000)
Proceeds from notes payable ................................. 1,500,000 839,000
Acquired treasury stock ..................................... -- (834,000)
Proceeds from issuance of common stock ...................... 80,816,000 --
Proceeds from exercise of stock options ..................... 189,000 184,000
Proceeds from employee stock purchase plan .................. -- 370,000
------------ ------------
Net cash provided by (used in) financing activities .. 82,358,000 (12,000)
------------ ------------
Increase (decrease) in cash and cash equivalents ..... (656,000) 2,902,000
Cash and cash equivalents, beginning of period ............ 1,735,000 878,000
------------ ------------
Cash and cash equivalents, end of period .................. $ 1,079,000 $ 3,780,000
============ ============
Supplementary disclosure of cash flow information: Cash paid
during the period for:
Interest .................................................. $ 53,000 $ 150,000
Taxes ..................................................... $ 6,000 $ 2,000
Supplementary disclosure of noncash transactions:
Equipment acquired under capital leases ................... $ 410,000 $ 544,000
Issuance of common stock for acquisitions ................. $ 23,231,000 $ 10,612,000
Equipment acquired under notes payable .................... $ -- $ 1,582,000
Treasury stock issued to employees relating
to the employee stock purchase plan ...................... $ -- $ 834,000
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

3
<PAGE> 6

LAUNCH MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

Launch Media, Inc. and subsidiaries ("the Company") was incorporated in
Delaware in February 1994 and is a digital media company focused on creating the
premier Internet destination for discovering new music. The Company operates in
one reportable industry segment. Leveraging the inherent advantages of digital
media, the Company offers a compelling music discovery experience from new and
established artists for consumers and provides a valuable marketing platform for
record labels, artists, advertisers and merchants. The music content is
delivered on the Internet at www.launch.com and on Launch on CD-ROM. Both
launch.com and Launch on CD-ROM are advertiser supported and include original
content that takes advantage of the personal computer's interactive multimedia
technology.

On April 23, 1999 the Company effected an initial public offering
("IPO") of 3,500,000 shares of its common stock at a price of $22 per share. On
May 19, 1999, the underwriters exercised their over-allotment option to purchase
an additional 510,000 shares of common stock. The net proceeds to the Company,
after deducting underwriting discounts and commissions and offering expenses,
were approximately $80.9 million.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Launch
Media, Inc. and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated.

UNAUDITED INTERIM FINANCIAL INFORMATION

The unaudited interim consolidated financial statements of the Company
for the three and six months ended June 30, 1999 and 2000, included herein have
been prepared in accordance with the instructions for Form 10-Q under the
Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X
under the Securities Act of 1933, as amended. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations relating to interim financial statements.

In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company at June 30, 2000, and the results of its operations and its cash
flows for the three and six months ended June 30, 1999 and 2000. The results for
the three and six months ended June 30, 2000 are not necessarily indicative of
the expected results for the full fiscal year or any future period.

BASIS OF PRESENTATION

These financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in the Annual
Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC").

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. On an

4
<PAGE> 7

ongoing basis, management reviews its estimates based on currently available
information. Changes in facts and circumstances may result in revised estimates.

REVENUE RECOGNITION

The Company's revenues have been derived primarily from the sale of
advertising, content licensing, transaction fees and annual subscriptions
relating to Launch on CD-ROM. Revenues for sponsorships across the Launch media
properties are recognized ratably over the sponsorship term which ranges from
one to twelve months. Revenues from advertisements for Launch on CD-ROM are
recognized upon the release date of the issue in which the advertisement
appears. With respect to launch.com, revenues from advertisements are recognized
ratably over the period in which the advertisement is displayed, provided that
no significant Launch obligations remain.

Content licensing revenue includes revenue resulting from Launch's
business to business content licensing. Launch obtains on-air radio advertising
in exchange for music news content. Launch sells this inventory to other web
sites for cash and recognizes revenue when the radio stations broadcast the
advertisement. In addition, revenue from syndication of Launch content is
recognized ratably over the contract term which is typically one year.

Advance payments for Launch on CD-ROM subscriptions are deferred and
recognized over the term of the related subscription, typically 12 months.
Advance payments for sponsorships are deferred and recognized over the term of
the sponsorship.

Advertising revenues also include barter revenues, which represent an
exchange by Launch of advertising space on the Company's media properties for
advertising space on other Web sites. Revenues and expenses from barter
transactions are recorded at the lower of estimated fair value of the
advertisements received or delivered based on advertising rates currently in
effect. Barter revenues are recognized when the advertisements are run on the
Company's media properties. Barter expenses are recognized when Launch's
advertisements are run on the reciprocal Web sites or other advertising medium,
which is typically in the same period as when the advertisements are run on the
Company's media properties. Revenues and expenses recognized from barter
transactions were approximately $270,000 and $504,000 for the three months ended
June 30, 1999 and 2000, respectively, or 14.6% and 10.0% of advertising and
transaction fees, respectively, and were approximately $478,000 and $834,000 for
the six months ended June 30 1999 and 2000, respectively, or 18.6% and 9.5% of
advertising, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

On June 26, 2000, the SEC staff issued SAB 101B to provide registrants
with additional time to implement guidance contained in SAB 101, Revenue
Recognition in Financial Statements. SAB 101B delays the implementation date of
SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. Management is evaluating the impact this statement may
have on the company's financial statements.

In March 2000, the Financial Accounting Standards Board issued
Interpretation No.44 ("FIN No.44"), "Accounting for Certain Transactions
Involving Stock Compensation, an Interpretation of APB Opinion No. 25." FIN
No.44 will be effective July 1, 2000. This interpretation provides guidance for
applying APB Opinion No.25, "Accounting for Stock issued to Employees."
Management does not believe that the adoption of FIN No.44 will have a
significant impact on the Company's consolidated financial position, results of
operations or cash flows.

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, which is effective for the year beginning January 1, 2001,
establishes accounting and reporting standards for derivative instruments and
for hedging activities. SAFS No. 133 was amended by SFAS No. 138 in June 2000.
SFAS No. 133 requires a company to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value.

5
<PAGE> 8

COMPUTATION OF NET LOSS PER SHARE

In accordance with SFAS No. 128, "Computation of Earnings Per Share",
basic earnings per share is computed using the weighted average number of shares
outstanding during the period and diluted earnings per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon exercise of outstanding stock options
and warrants, using the treasury stock method. Common equivalent shares are
excluded from the calculation if their effect is anti-dilutive. Pursuant to SEC
Staff Accounting Bulletin No. 98, common stock and convertible preferred stock
issued for nominal consideration, prior to the anticipated effective date of an
IPO, are required to be included in the calculation of basic and diluted net
loss per share as if they were outstanding for all periods presented. To date,
the Company has not had any issuances or grants for nominal consideration.

Diluted net loss per share for the three months ended June 30, 2000,
does not include the effect of options and warrants to purchase 1,627,176 and
946,496 shares of common stock, respectively.

3. RELATED PARTY TRANSACTIONS

In April 1999, the Company and another corporate shareholder entered
into a sponsorship and content license agreement and a music video license
agreement upon the closing of the IPO. Advertising revenues for the three and
six months ended June 30, 2000 were approximately $409,000 and $827,000,
respectively. This revenue is included in advertising and transaction fees in
the consolidated statement of operations.

On June 19, 2000, Launch entered into a definitive agreement to acquire
The Warped Tour, a summer concert series. The transaction is expected to close
prior to September 30, 2000.

4. INCOME TAXES

The Company's income tax provision consists of minimum state franchise
taxes.

5. CAPITAL LEASE LINE OF CREDIT AND FINANCING FACILITY

The Company has a revolving capital lease line of credit for $2.0
million. At June 30, 2000, $1.7 million was outstanding under this line of
credit. This facility bears interest at the bank's prime rate (9.5% at June 30,
2000). The leased assets collateralize any borrowings under this line of credit.

The Company has an additional line of credit for $3.0 million to finance
capital expenditures. The line of credit accrues interest at 15% per annum and
requires monthly interest and principal payments. At June 30, 2000, $1.6 million
was outstanding under this line. The acquired assets collateralize any
borrowings under this facility.

6
<PAGE> 9

6. PRO FORMA RESULTS

Pro forma results of operations for the three and six months ended June
30, 1999, presented by combining the results of operations of the Company's
acquisitions of SW Networks Inc. (April 1999) and Musicvideos.com (February
1999) with the results of operations of the Company were as follows.

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 ENDED JUNE 30, 1999
-------------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net revenues:
Advertising and transaction fees .................. $ 1,852,000 $ 2,666,000
Content Licensing ................................. 1,770,000 2,812,000
Subscriptions and other ........................... 291,000 876,000
------------ ------------
3,913,000 6,354,000
Operating expenses:
Cost of revenues ................................... 827,000 1,477,000
Sales and marketing ................................ 5,826,000 8,979,000
Content and product development .................... 2,925,000 5,102,000
General and administrative ......................... 1,164,000 2,156,000
Depreciation and amortization ...................... 2,213,000 4,319,000
------------ ------------
Loss from operations ............................... (9,042,000) (15,679,000)
Interest income and other, net ....................... 267,000 267,000
------------ ------------
Loss before provision for income taxes ............. (8,775,000) (15,412,000)
Provision for income taxes ........................... 2,000 12,000
------------ ------------
Net loss ........................................... $ (8,777,000) $(15,424,000)
============ ============
Pro forma basic and diluted net loss per
common share ...................................... $ (0.76) $ (1.54)
============ ============
Weighted average shares outstanding used in pro
forma per share calculation ....................... 11,557,000 9,996,000
============ ============
</TABLE>

7
<PAGE> 10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Company has included in this filing certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning the Company's business, operations and financial condition.
The words or phrases "can be", "expects", "may affect", "may depend",
"believes", "estimates", "projects", and similar words and phrases are intended
to identify such forward-looking statements. Such forward-looking statements are
subject to various known and unknown risks and uncertainties, and the Company
cautions you that any forward-looking information provided by or on behalf of
the Company is not a guarantee of future performance. Actual results could
differ materially from those anticipated in such forward-looking statements due
to a number of factors, some of which are beyond the Company's control, in
addition to those discussed in the Company's other public filings, press
releases and statements by the Company's management, including (i) the volatile
and competitive nature of the Internet and music industries, (ii) changes in
domestic and foreign economic and market conditions, (iii) the effect of
federal, state and foreign regulation on the Company's business, and (iv) the
effect of any future acquisitions. All such forward-looking statements are
current only as of the date on which such statements were made. The Company does
not undertake any obligation to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any such statement is
made or to reflect the occurrence of unanticipated events.

The Company's fiscal year ends on December 31 of each calendar year.

RECENT EVENTS

On June 19, 2000, Launch entered into a definitive purchase agreement to
acquire The Warped Tour, the popular summer concert series where musicians,
athletes and fans interact and participate in day-long events. The acquisition
is expected to close prior to September 30, 2000. The Warped Tour blends a
section of great music from chart-topping and emerging artists with the
skate/surf culture and extreme sports. The acquisition will allow Launch to
deliver additional unique integrated sponsorship opportunities to its customers.
Additionally, the tour will afford Launch the opportunity of supplementing its
existing marketing efforts, as well as serve as a vehicle that will generate
additional content. Launch will maintain an on-site presence at the concerts and
simultaneously take on the responsibility of promoting, marketing and selling
sponsorships for the tour by leveraging key online and offline partnerships. The
Tour's web site, warpedtour.com, will become one of Launch's online media
properties. Launch will leverage its database of 4.3 million registered members
to both promote the tour and drive ticket sales. We believe that this
acquisition will bring synergies to the Company's online efforts while
strengthening our offline presence.

8
<PAGE> 11

OVERVIEW

Launch is a digital media company focused on music, leveraging the
inherent advantages of digital media to offer consumers a compelling music
discovery experience while providing record labels, artists, advertisers and
merchants a valuable marketing platform. Our content is delivered on the
Internet at www.launch.com and on the monthly Launch on CD-ROM.

As of June 30, 2000, launch.com had approximately 4.3 million registered
members, and Launch on CD-ROM had approximately 265,000 subscribers.
Doubleclick, Inc. our third party ad server, reported that in June of 2000 there
were approximately 3.7 million unique visitors to launch.com.

Launch has incurred significant net losses and negative cash flows from
operations since its inception, and as of June 30, 2000, had an accumulated
deficit of approximately $89.2 million. Launch intends to continue to make
significant financial investments in marketing and promotion, content
development and technology and infrastructure development. As a result, Launch
believes that it will incur operating losses and negative cash flows from
operations for the foreseeable future, and that such cumulative losses and
cumulative negative cash flows will increase for at least the next year.

To date, Launch's revenues have been derived primarily from the sale of
advertising, sponsorships, and content licensing. Revenues for sponsorships
across the Launch media properties are recognized ratably over the sponsorship
term, which is typically one month. Revenues from advertisements for Launch on
CD-ROM are recognized upon the release date of the issue in which the
advertisement appears. With respect to launch.com, revenues from advertisements
are recognized ratably in the period in which the advertisement is displayed,
provided that no significant Launch obligations remain. With respect to the
majority of Launch's business to business content licensing, Launch obtains
on-air radio advertising inventory in exchange for music news content. Launch
sells this inventory for cash and recognizes revenue when the radio stations
broadcast the advertisement.

We derive subscription revenues from annual subscription fees for Launch
on CD-ROM. Advance payments for Launch on CD-ROM subscriptions are recorded as
deferred revenue and recognized as revenue ratably over the term of the
subscription.

We have entered into various license arrangements, strategic alliances
and business acquisitions in order to increase our music-specific content,
generate additional online traffic, increase subscriptions and memberships and
establish additional sources of revenue. Our business acquisitions, arrangements
and alliances have resulted in a variety of non-cash charges that will affect
our operating results over the next several fiscal periods.

RESULTS OF OPERATIONS

Net Revenues:

Net revenues increased 125% from $3.5 million for the three months ended
June 30, 1999 to $7.8 million for the three months ended June 30, 2000. Net
revenues increased 201.4% from $4.7 million for the six months ended June 30,
1999 to $14.3 million for the six months ended June 30, 2000. The increase in
net revenues was attributable primarily to an increase in advertising and
transaction fees and content licensing revenues.

9
<PAGE> 12

Advertising And Transaction Fees. Advertising and transaction fees
increased 173% from $1.9 million or 53.2% of net revenues, for the three months
ended June 30, 1999 to $5.1 million, or 64.7% of net revenues, for the three
months ended June 30, 2000. Advertising and transaction fees increased 242.3%
from $2.6 million or 54.2% of net revenues for the six months ended June 30,
1999 to $8.8 million or 61.5% of net revenues for the six months ended June 30,
2000. Advertising revenues increased primarily as a result of an increased
number of new advertisers and sponsors on the Company's media properties. During
1999 and the six months ended June 30, 2000, Launch continued to expand its
advertising sales force, in particular focusing its sales efforts on
sponsorships or advertisements that covered all of Launch's media properties. In
addition, the inventory of impressions available on our web site increased as
registered and unique users on launch.com increased. Launch expects advertising
and transaction revenue will continue to represent a significant portion of our
net revenues for the foreseeable future. Included in advertising revenues are
revenues recognized from barter transactions of $270,000, or 14.6% of
advertising revenues, for the three months ended June 30, 1999 and $504,000 or
10.0% of advertising revenues, for the three months of 2000. Revenues recognized
from barter transactions were $478,000 or 18.6% of advertising revenues for the
six months ended June 30, 1999 and $834,000 or 9.5% of advertising revenues for
the six months ended June 30, 2000.

Content Licensing. Content licensing revenues increased 63.7% from $1.4
million or 38.8% of net revenues for the three months ended June 30,1999 to $2.2
million, or 28.3% of net revenues for the three months ended June 30, 2000.
Content licensing revenues increased 224.9% from $1.4 million or 28.5% of net
revenues for the six months ended June 30, 1999 to $4.4 million or 30.8% of net
revenues for the six months ended June 30, 2000. Content licensing revenue is
primarily generated from Launch Radio Networks (LRN) by providing news and
information to radio stations in exchange for advertising radio spots. These
radio spots are sold through a third-party advertising agency and recognized as
revenue when the radio station broadcasts the advertisement. While LRN revenue
comprises the majority of our content licensing, we expect LRN revenues to
decrease as a percentage of total content licensing as we continue to expand our
content syndication.

Subscriptions and Other Revenues. Subscriptions and other revenues
increased 95.0% from $280,000, or 8.0% of total net revenues for the three
months ended June 30, 1999 to $547,000, or 7.0% of total net revenues for the
three months ended June 30, 2000. Subscriptions and other revenues increased
34.5% from $817,000 or 17.3% of net revenues for the six months ended June 30,
1999 to $1.1 million or 7.7% of net revenues for the six months ended June 30,
2000.

Operating Expenses

Cost of Revenues. Cost of revenues consists primarily of Online Music
Group (OMG) inventory purchases, Launch on CD-ROM manufacturing and packaging
costs and related subscription distribution costs. Cost of revenues increased
58.9% from $827,000, or 23.8% of net revenues, during the three months ended
June 30, 1999 to $1.3 million, or 16.8% of net revenues, during the three months
ended June 30, 2000. Cost of revenues increased 65.6% from $1.5 million or 31.3%
of net revenues for the six months ended June 30, 1999 to $2.4 million or 17.2%
of net revenues for the six months ended June 30, 2000. The increase in cost of
revenues during the three and six months ended June 30, 2000 was primarily the
result of banner inventory costs relating to OMG. We expect cost of revenue as a
percentage of net revenues to decrease as Launch on CD-ROM is phased out.

Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of advertising and marketing costs, promotional costs, customer
acquisition costs, commissions paid to a media representative firm, radio
affiliate sales and advertising sales force expenses. Sales and marketing
expenses increased 39.1% from $5.7 million, or 164.3% of net revenues, during
the three months ended June 30, 1999 to $8.0 million, or 101.8% of net revenues,
during the three months ended June 30, 2000. Sales and marketing expenses
increased 80.8% from $8.6 million or 180.8% of net revenues for the six months
ended June 30, 1999 to $15.5 million or 108.5% of net revenues for the six
months ended June 30, 2000. The increase in sales and marketing expenses
occurred primarily due to the cost of acquiring new registered users on
launch.com including distribution agreements and promotions, advertising for
Launch on other websites, the hiring of additional sales

10
<PAGE> 13

and marketing personnel, and increased marketing to promote the Launch brand. We
expect sales and marketing expenses to increase in absolute dollars as we pursue
our marketing campaigns to increase the audience on launch.com and hire
additional sales and marketing personnel.

Content and Product Development Expenses. Content and product
development expenses consist primarily of editorial expenses, which includes
video production and editorial writers, art production, hosting and bandwidth,
software and content licenses, and Web development costs. Content and product
development expenses increased 77.6% from $2.6 million, or 75.7% of net
revenues, during the three months ended June 30, 1999 to $4.7 million, or 59.9%
of net revenues, during the three months ended June 30, 2000. Content and
product development expenses increased 137.3% from $4.0 million or 83.6% of net
revenues for the six months ended June 30, 1999 to $9.4 million or 65.8% of net
revenues for the six months ended June 30, 2000. Content and product development
expenses increased in the three and six months ended June 30, 2000 due to costs
of further developing and enhancing the launch.com Web site, including
consulting costs, software license costs and additions to personnel. We believe
that significant investments in product development are required to remain
competitive. Therefore, we expect that product development expenses will
continue to increase in absolute dollars for the foreseeable future and our
content costs to remain relatively flat.

General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs for general corporate functions,
including finance, legal, human resources and accounting. Also included are
facilities costs and fees for professional services. General and administrative
expenses increased 134.4% from $1.0 million, or 29.3% of net revenues, during
the three months ended June 30, 1999 to $2.4 million, or 30.6% of net revenues,
during the three months ended June 30, 2000. General and administrative expenses
increased 182.8% from $1.6 million or 34.3% of net revenues for the six months
ended June 30, 1999 to $4.6 million or 32.1% of net revenues for the six months
ended June 30, 2000. The absolute dollar increase in general and administrative
expenses in the three and six months ending June 30, 2000 was primarily
attributable to salary and related expenses for additional personnel and
increases in facilities costs. Launch believes our infrastructure to be
primarily in place. However, we anticipate increases relating to expanding
facilities and additional costs related to being a public company, including
costs related to investor relations programs and professional service fees.

Depreciation and Amortization. Depreciation and amortization was $4.2
million during the three months ended June 30, 2000 and primarily consisted of
$3,374,000 of amortization of excess purchase price over tangible net assets
acquired arising from its acquisitions and $822,000 of depreciation.
Depreciation and amortization was $8.2 million for the six months ended June 30,
2000.

Interest Income And Other, Net. Interest income and other, net, consists
of interest earned on cash and cash equivalents and short-term investments,
offset by interest expense on borrowings and net gains or losses from the sale
of securities held for sale. Net interest income and other was $265,000 during
the three months ended June 30, 1999 compared which increased to $484,000 during
the three months ended June 30, 2000 as a result of investing net proceeds from
the Company's IPO. Net interest income and other was $285,000 for the six months
ended 1999, compared to $1.7 million for the six months ended June 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, Launch has financed its operations primarily
through a public issuance of common stock, private placements of preferred stock
and, to a lesser extent, from the revenues generated by operations. As of June
30, 2000, Launch had approximately $40.0 million in cash, cash equivalents, and
short term investments.

Net cash used in operating activities increased to $15.9 million for the
six months ended June 30, 2000 from $7.6 million for the six months ended June
30, 1999. The increase in net cash used in operating activities is substantially
attributable to the increased net loss, excluding non-cash charges.

11
<PAGE> 14

Net cash provided by investing activities was $18.8 million for the six
months ended June 30, 2000, as compared to net cash used by investing activities
of $75.4 million for the six months ended June 30, 1999. The increase in net
cash provided by investing activities resulted primarily from the sale of
securities purchased during the first and second quarter of 2000 as a result of
investing the cash raised in our IPO. This cash is invested predominantly in
high quality investment grade debt securities with maturities of less than one
year.

Net cash used by financing activities was $12,000 for the six months
ended June 30, 2000, compared to $82.4 million provided by financing activities
for the six months ended June 30, 1999. The net cash provided by financing
activities during the six months ended June 30, 1999 was attributable to the
IPO.

We have a revolving capital lease line of credit for $2.0 million. At
June 30, 2000, $1.7 million was outstanding under this line of credit. This
facility bears interest at the bank's prime rate (9.5% at June 30, 2000). The
leased assets collateralize any borrowings under this line of credit. In
addition, we have $1.6 million outstanding under an additional capital
expenditure line of credit as of June 30, 2000. This line of credit accrues
interest at 15% per annum and requires monthly interest and principal payments.
Any acquired assets collateralize borrowings under this facility.

We have experienced a substantial increase in our capital expenditures
and operating lease arrangements since inception, which is consistent with the
growth in our operations and staffing, and anticipate that this will continue
for the foreseeable future. Additionally, Launch will continue to evaluate
possible investments in businesses, products and technologies, and plans to
expand its sales and customer acquisition programs and conduct brand promotions.
Launch currently expects that the net proceeds from its IPO, together with its
existing lines of credit and available funds, will be sufficient to meet its
anticipated needs for working capital and capital expenditures for at least the
next 12 months. There can be no assurance, however, that the underlying assumed
levels of revenues and expenses will prove to be accurate. Launch may seek
additional funding through public or private financings or other arrangements
prior to such time. Adequate funds may not be available when needed or may not
be available on terms favorable to Launch. If additional funds are raised
through the issuance of equity securities, dilution to existing stockholders may
result. If funding is insufficient at any time in the future, Launch may be
unable to develop or enhance its products or services, take advantage of
business opportunities or respond to competitive pressures, any of which could
have a material adverse effect on Launch's business, financial condition and
results of operations.

SEASONALITY OF BUSINESS AND QUARTERLY RESULTS

The Company believes that advertising sales in traditional media are
generally lower in the first and third calendar quarters of each year than in
respective preceding quarters and that advertising expenditures fluctuate
significantly with economic cycles. Depending on the extent to which the
Internet is accepted as an advertising medium, seasonality and cyclicality in
the level of internet advertising expenditures could become more pronounced. The
forgoing factor could have a material adverse effect on the Company's business,
results of operations and financial condition.

12
<PAGE> 15

RISKS THAT MAY AFFECT RESULTS

WE HAVE A LIMITED OPERATING HISTORY THAT MAKES AN EVALUATION OF OUR BUSINESS
DIFFICULT

We incorporated in February 1994 and published the first issue of Launch
on CD-ROM in May 1995. We first made launch.com available over the Internet in
October 1997. Because we have a limited operating history, you must consider the
risks and difficulties frequently encountered by early-stage companies such as
Launch in new and rapidly evolving markets, including the market for advertising
on the Internet and other digital media. Prior to 1999, Launch on CD-ROM had
accounted for the majority of Launch's audience. Accordingly, Launch had derived
its revenues principally from advertising sales against the Launch on CD-ROM
audience and, to a lesser extent, from subscriptions for Launch on CD-ROM.
Future growth in our business will depend substantially upon our ability to
increase the size of the launch.com audience, to increase advertising sales
against that audience and to meet the challenges described in the risk factors
below.

WE HAVE A HISTORY OF LOSSES AND BECAUSE WE ANTICIPATE THAT OUR OPERATING
EXPENSES WILL GROW MORE QUICKLY THAN OUR REVENUES, AT LEAST IN THE SHORT TERM,
WE EXPECT INCREASED LOSSES

We incurred net losses of $6.7 million in 1997, $13.4 million in 1998
and $37.5 million in 1999 and $24.1 million for the six months ended June 30,
2000. As of June 30, 2000, our accumulated deficit was $89.2 million. We have
not achieved profitability and expect to incur operating losses for the
foreseeable future. We expect these operating losses to increase for at least
the next year. We will need to generate significant revenues to achieve and
maintain profitability, and we cannot assure you that we will be able to do so.
Even if we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or an annual basis in the future. If our
revenues grow more slowly than we anticipate or if our operating expenses exceed
our expectations, our financial performance will likely be adversely affected.
See "Selected Financial Data" for more detailed information regarding our
historical operating results.

OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR STOCK PRICE TO
FLUCTUATE

Our future revenues and operating results are likely to vary
significantly from quarter to quarter due to a number of factors, many of which
are outside of our control. Accordingly, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. It is possible that in some future periods our operating
results will be below the expectations of public market analysts and investors.
In this event, the price of our common stock will likely decline. Factors which
may cause our revenues and operating results to fluctuate include the following:

- our ability to attract and retain advertisers;

- our ability to increase the registered membership of launch.com and
the new web sites, services or products introduced by us or by our
competitors;

- the timing and uncertainty of sales cycles;

- mix of online advertisements sold;

- seasonal declines in advertising sales, which typically occur in the
first and third calendar quarters;

- the level of Web and online services usage;

- our ability to successfully integrate operations and technologies
from acquisitions or other business combinations;

- technical difficulties or system downtime affecting the Internet
generally or the operation of launch.com; and

13
<PAGE> 16

- general economic conditions, as well as economic conditions specific
to digital media and the music industry.

To attract and retain a larger audience, we plan to increase our
expenditures for sales and marketing, content development, and technology and
infrastructure development. Many of these expenditures are planned or committed
in advance in anticipation of future revenues. Because advertising orders are
typically short term and subject to cancellation without penalty until shortly
before the advertisement runs, our quarterly operating results are difficult to
forecast. If our revenues in a particular quarter are lower than we anticipate,
we may be unable to reduce spending in that quarter. As a result, any shortfall
in revenues would likely adversely affect our quarterly operating results.

BECAUSE WE DEPEND PRINCIPALLY UPON ADVERTISING REVENUES, IF WE DO NOT INCREASE
ADVERTISING SALES, OUR BUSINESS MAY NOT GROW OR SURVIVE

Our revenues for the foreseeable future will depend substantially on
sales of advertising. In 1999 advertising sales accounted for 53.9% of our net
revenues, and for the three months ended June 30, 2000 they accounted for 64.7%.
If we do not increase advertising revenues, our business may not grow or
survive. Increasing our advertising revenues depends upon many factors,
including our ability to do the following:

- conduct successful selling and marketing efforts aimed at
advertisers;

- increase the size of the launch.com audience;

- increase the amount of revenues per advertisement;

- aggregate our target demographic group of 12 to 34 year old active
music consumers, and, in particular, the Generation Y segment of
this group;

- increase awareness of the Launch brand among advertisers;

- target advertisements to appropriate segments of our audience;

- make Launch available through evolving broadband distribution
channels; and

- accurately measure the size and demographic characteristics of our
audience.

Our failure to achieve one or more of these objectives could adversely
affect our business.

Advertising revenues are difficult to forecast, especially because the
market for advertising on digital media has emerged relatively recently. We have
historically entered into barter transactions with advertisers that we do not
believe would pay cash for such advertisements. We expect to substantially
reduce both the dollar volume and frequency of such transactions in future
periods. In each quarterly period, we derive a significant portion of our
revenues from sales of advertising to a limited number of customers.
Accordingly, the loss of a key advertising relationship or the cancellation or
deferral of even a limited number of orders could adversely affect our quarterly
performance.

IF WE FAIL TO INCREASE THE SIZE OF OUR AUDIENCE, WE MAY NOT BE ABLE TO ATTRACT
ADVERTISERS OR STRATEGIC PARTNERS

Increasing the size of our audience is critical to selling advertising
and to increasing our revenues. If we cannot increase the size of our audience,
then we may be unable to attract new or retain existing advertisers. In
addition, we may be at a relative disadvantage to other digital media companies
with larger audiences that may be able to leverage their audiences to access
more advertisers and significant strategic alliances. To attract and retain our
audience, we must do the following:

14
<PAGE> 17

- continue to offer compelling music content;

- encourage our users to become part of our community;

- conduct effective marketing campaigns to acquire new members;

- develop new and maintain existing distribution relationships with
other Web sites;

- update and enhance the features of launch.com;

- increase awareness of the Launch brand;

- make Launch available through broadband distribution channels as
they achieve widespread consumer acceptance; and

- offer targeted, relevant products and services.

Our failure to achieve one or more of these objectives could adversely
affect our business, and we cannot assure you that we will be successful in
these efforts.

A significant element of our strategy is to build a loyal community of
registered members on launch.com because we believe community features help
retain actively engaged users. The concept of developing such a community on the
Web is unproven, and if it is not successful, then it may be more difficult to
increase the size of our audience.

We also depend on establishing and maintaining distribution
relationships with high-traffic Web sites to increase our audience. There is
intense competition for placements on these sites, and we may not be able to
enter into such relationships on commercially reasonable terms or at all. Even
if we enter into distribution relationships with these Web sites, they
themselves may not attract significant numbers of users. Therefore, launch.com
may not obtain additional users from these relationships. Moreover, we have paid
in the past, and may pay in the future, significant fees to establish these
relationships.

We also intend to increase our financial expenditures on marketing the
Launch brand because we believe brand awareness will be critical to increasing
our audience, especially because there are few barriers to entry for Internet
businesses. If we do not increase our revenues as a result of our branding and
other marketing efforts or if we otherwise fail to promote our brand
successfully, our business could be adversely affected.

SALES CYCLES VARY FOR ADVERTISING AND MAY CAUSE OUR OPERATING RESULTS TO
FLUCTUATE

Our dependence on advertising subjects us to additional risks because
the sales cycles for these sales vary significantly. The time between the date
of initial contact with a potential advertiser or sponsor and receipt of a
purchase order from the advertiser may range from as little as six weeks to up
to nine months. During these sales cycles, we may expend substantial funds and
management resources but not obtain advertising revenues. Therefore, if these
sales are delayed or do not otherwise occur, our operating results for a
particular period may be adversely affected.

Advertising sales are subject to delays over which we have little or no
control, including the following:

- advertisers' budgetary constraints;

- internal acceptance reviews by advertisers and their agencies;

- the timing of completion of advertisements by advertisers; and

- the possibility of cancellation or delay of projects by advertisers
or sponsors.

15
<PAGE> 18

FAILURE TO CONTINUE TO DEVELOP COMPELLING CONTENT THAT ATTRACTS OUR TARGET
AUDIENCE COULD CAUSE OUR AUDIENCE SIZE TO DECREASE OR CHANGE THE DEMOGRAPHICS OF
OUR AUDIENCE

Our future success depends on our ability to continue to develop content
that is interesting and engaging to our target audience. If our audience
determines that our content does not reflect its tastes, then our audience size
could decrease or the demographic characteristics of our audience could change.
Either of these results would adversely affect our ability to attract
advertisers. Our ability to develop compelling content depends on several
factors, including the following:

- quality of our editorial staff;

- technical expertise of our production staff;

- access to recording artists; and

- access to content controlled by record labels, publishers and
artists.

Further, consumer tastes change, particularly those of Generation Y, and
we maybe unable to react to those changes effectively or in a timely manner.

LIMITATIONS ON THE AVAILABILITY OR INCREASES IN THE PRICE OF MUSIC CONTENT
DEVELOPED BY THIRD PARTIES COULD ADVERSELY AFFECT OUR BUSINESS

Because much of our content, including recording artist interviews,
audio and video performances and music, are provided to us by record labels and
artists at minimal or no charge, we depend on our good relations with record
labels and artists to offer compelling content. We cannot assure you that they
will continue to make their content available to us on reasonable terms or at
all. If record labels, music publishers or artists charge significant fees for
their content or discontinue their relationships with us, then our content
offering could be adversely affected.

A significant portion of the music content available on Launch is
licensed from publishers, record labels and artists. We frequently either do not
have written contracts or have short-term contracts with copyright owners, and,
accordingly, our access to copyrighted content depends upon the willingness of
such parties to continue to make their content available. Further, the parties
who license material to us may face increasing costs to develop or acquire that
material as a result of evolving laws regarding intellectual property, and these
licensors may pass any such additional costs on to us. If the fees for music
content increase substantially or if significant music content becomes
unavailable, our ability to offer music content could be materially limited. We
currently use certain content without first obtaining a license because we
believe that a license is not required under existing law. However, this area of
law remains uncertain and may not be resolved for a number of years. When this
area of law is resolved, we may be required to obtain licenses for such content.
Licenses may not be available on reasonable terms, if at all. Any limit on our
content offering could adversely affect our business.

WE NEED NEW DISTRIBUTION TECHNOLOGIES TO INCREASE ACCESSIBILITY OF OR OUR
CONTENT, AND FAILURE OF SUCH TECHNOLOGIES TO ACHIEVE CONSUMER ACCEPTANCE COULD
LIMIT OUR GROWTH

To experience the full extent of our high-quality audio and full-motion
video content, consumers must access such content either from a CD-ROM, DVD-ROM
or over a high-bandwidth connection, such as cable or direct subscriber line
modem or satellite data broadcast. If such broadband distribution networks do
not achieve widespread consumer acceptance, we may be unable to effectively
distribute our audio and video content in its most compelling format. We cannot
assure you that broadband distribution networks will ever achieve consumer
acceptance, and if they do not, our growth may be limited.

16
<PAGE> 19

WE DEPEND ON A LIMITED NUMBER OF ADVERTISERS, AND THE LOSS OF A NUMBER OF THESE
ADVERTISERS COULD ADVERSELY AFFECT OUR OPERATING RESULTS

Historically, a limited number of advertisers have accounted for a
significant percentage of our revenues. We anticipate that our results of
operations in any given period will continue to depend to a significant extent
upon revenues from a small number of advertisers. In addition, particularly
because few advertisers are contractually obligated to purchase any advertising
in the future, we anticipate that the mix of advertisers in each fiscal period
will continue to vary. In order to increase our revenues, we will need to
attract additional significant advertisers on an ongoing basis. Our failure to
sell a sufficient number of advertisements or to engage a sufficient number of
advertisers during a particular period could adversely affect our results of
operations.

WE MUST MAINTAIN AND ESTABLISH STRATEGIC ALLIANCES TO INCREASE OUR AUDIENCE AND
ENHANCE OUR BUSINESS

In an attempt to increase audience, build brand recognition and enhance
content, distribution and commerce opportunities, we have entered into strategic
alliances with various media and Internet-related companies such as Sony Music,
Inc., America Online, Inc., Microsoft Corporation and Intel Corporation. Our
failure to maintain or renew our existing strategic alliances or to establish
and capitalize on new strategic alliances could have an adverse affect on our
business. Our future success depends to a significant extent upon the success of
such alliances. Occasionally, we enter into agreements with strategic partners
that may prohibit us from entering into similar arrangements with competitors of
our strategic partners. Such exclusivity provisions may limit our ability to
enter into favorable arrangements with complementary businesses and thereby
limit our growth. We cannot assure you that we will achieve the strategic
objectives of these alliances, that any party to a strategic alliance agreement
with Launch will perform its obligations as agreed upon or that such agreements
will be specifically enforceable by Launch. In addition, some of our strategic
alliances are short term in nature and may be terminated by either party on
short notice.

COMPETITION FROM TRADITIONAL AND ONLINE MEDIA AND OTHER COMPANIES FOCUSED ON
MUSIC COULD REDUCE OUR ADVERTISING SALES OR MARKET SHARE

Competition among media companies seeking to attract the active music
consumer is intense. Increased competition could result in advertising price
reduction, reduced margins or loss of market share, any of which could adversely
affect our business. Traditional media companies, such as television
broadcasters, magazine publishers and radio stations, are constantly refining
their content and strategies to increase their audiences and advertising
revenues. Further, the number of Web sites competing for the attention and
spending of members, users and advertisers has increased, and we expect it to
continue to increase, particularly because there are so few barriers to entry on
the Web. We compete for members, users and advertisers with the following types
of companies:

- publishers and distributors of traditional media, such as
television, radio and print, including MTV, Clear Channel, CMT,
Rolling Stone and Spin, and their Internet affiliates;

- online services or and Web sites targeted at music consumers, such
as mp3.com, Artistdirect, MTVi, emusic.com and musicmaker.com;

- Web retrieval and other Web "portal" companies, such as Excite@Home,
Inc., Infoseek Corporation, Lycos, Inc. and Yahoo, Inc.; and

- online music retailers, such as CDNow, Inc. and Amazon.com, Inc.

Because we compete for advertisers with traditional advertising media,
our business could be adversely affected if advertisers do not view digital
media as effective for advertising. Competition is likely to increase
significantly as new companies enter the market and current competitors expand
their services. Many of these potential competitors are likely to enjoy
substantial competitive

17
<PAGE> 20

advantages, including the following:

- larger audiences;

- larger technical, production and editorial staffs;

- greater name recognition;

- better access to content;

- more established Internet presence;

- larger advertiser bases; and

- substantially greater financial, marketing, technical and other
resources.

If we do not compete effectively or if we experience any pricing
pressures, reduced margins or loss of market share resulting from increased
competition, our business could be adversely affected.

THE LOSS OF OUR CHIEF EXECUTIVE OFFICER, OUR PRESIDENT OR OTHER KEY PERSONNEL
COULD ADVERSELY AFFECT OUR BUSINESS BECAUSE THESE OFFICERS ARE IMPORTANT TO OUR
CONTINUED GROWTH

Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, and particularly
David B. Goldberg, Launch's chief executive officer, and Robert D. Roback,
Launch's president. The loss of either of these individuals or certain other key
employees would likely have an adverse effect on our business. We have an
employment agreement with only one of our executive officers, and we do not
anticipate that other executive officers or key personnel will enter into
employment agreements. We expect that we will need to hire additional personnel
in all areas during 2000. Competition for personnel throughout our industry is
intense. We may be unable to retain our current key employees or attract,
integrate or retain other highly qualified employees in the future. We have in
the past experienced, and we expect to continue to experience, difficulty in
hiring and retaining highly skilled employees with appropriate qualifications.
If we do not succeed in attracting new personnel or retaining and motivating our
current personnel, our business could be adversely affected.

GROWTH IN OUR OPERATIONS, PARTICULARLY OUR SALES, MARKETING, FINANCIAL AND
ADMINISTRATIVE ORGANIZATIONS, IS PLACING A STRAIN ON OUR RESOURCES, AND FAILURE
TO MANAGE GROWTH EFFECTIVELY COULD HARM OUR BUSINESS

We have experienced and are currently experiencing a period of
significant growth in our operations. This growth has placed, and our
anticipated future growth in our operations will continue to place, a
significant strain on our resources. As part of this growth, we will have to
implement new operational systems and procedures and controls to expand, train
and manage our employee base and to maintain close coordination among our
technical, accounting, finance, marketing, sales and production staffs. We will
also need to continue to attract, retain and integrate personnel in all aspects
of our operations. To the extent we acquire new businesses, we will also need to
integrate new operations, technologies and personnel. Failure to manage our
growth effectively could adversely affect our business.

ACCEPTANCE AND EFFECTIVENESS OF DIGITAL MEDIA FOR ADVERTISING ARE UNPROVEN,
WHICH MAY DISCOURAGE SOME ADVERTISERS FROM ADVERTISING ON LAUNCH

Our future is highly dependent on an increase in the use of the Internet
and other forms of digital media for advertising. If the Internet advertising
market fails to develop or develops more slowly than we expect, then our
business could be adversely affected. Moreover, the market for advertising on
other forms of digital media, such as broadband distribution, is even less
developed than Internet advertising, and if that market does not develop, then
our growth may be limited.

18
<PAGE> 21

The Internet advertising market is new and rapidly evolving, and we
cannot yet gauge the effectiveness of advertising on the Internet as compared to
traditional media. As a result, demand for Internet advertising is uncertain.
Many advertisers have little or no experience using the Internet for advertising
purposes. The adoption of Internet advertising, particularly by companies that
have historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Such customers may find advertising on the
Internet to be undesirable or less effective for promoting their products and
services relative to traditional advertising media.

Different pricing models are used to sell Internet advertising. It is
difficult to predict which, if any, will emerge as the industry standard. This
uncertainty makes it difficult to project our future advertising rates and
revenues. Any failure to adapt to pricing models that develop or respond to
competitive pressures could adversely affect our advertising revenues. Moreover,
"filter" software programs that limit or prevent advertising from being
delivered to an Internet user's computer are available. Widespread adoption of
this software could adversely affect the commercial viability of Internet
advertising.

TRACKING AND MEASUREMENT STANDARDS FOR ADVERTISING ARE EVOLVING AND CREATE
UNCERTAINTY ABOUT THE VIABILITY OF OUR BUSINESS MODEL

There are currently no standards for the measurement of the
effectiveness of advertising on the Internet and other digital media, and the
industry may need to develop standard measurements. The absence or insufficiency
of these standards could adversely impact our ability to attract and retain
advertisers. We cannot assure you that such standard measurements will develop.
In addition, currently available software programs that track Internet usage and
other tracking methodologies are rapidly evolving. We cannot assure you that the
development of such software or other methodologies will keep pace with our
information needs, particularly to support the growing needs of our internal
business requirements and advertising clients. For instance, DoubleClick, Inc.,
our third party ad server, reported that there were 8.0 million unique visitors
in June 2000 to Launch.com properties. Our advertisers may rely on this data or
other similar data to determine whether to advertise on Launch, and adverse data
from this or other sources in any particular period may cause advertisers not to
advertise on Launch.

It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements on our Web
site. We depend on third parties to provide certain of these measurement
services. If they are unable to provide these services in the future, we would
need to perform them ourselves or obtain them from another provider, if
available. This could cause us to incur additional costs or cause interruptions
in our business during the time we are replacing these services. Companies may
choose to not advertise on Launch or may pay less for advertising if they do not
perceive our measurements or measurements made by third parties to be reliable.

WE MAY HAVE LIABILITY FOR NEGLIGENCE, DEFAMATION OR OTHER MATTERS FOR CONTENT
POSTED ON LAUNCH.COM OR TO CONSUMERS FOR PRODUCTS SOLD THROUGH LAUNCH.COM

Because users of our Web site may distribute our content to others,
third parties might sue us for defamation, negligence, copyright or trademark
infringement or other matters. These types of claims have been brought,
sometimes successfully, against online services in the past. Others could also
sue us for the content that is accessible from our Web sites through links to
other Web sites or through content and materials that may be posted by
launch.com members. Such claims might include, among others, that by directly or
indirectly hosting the personal Web sites of third parties, we are liable for
copyright or trademark infringement or other wrongful actions by such third
parties through such Web sites. It is also possible that if any third-party
content information provided on launch.com contains errors, third parties could
make claims against us for losses incurred in reliance on such information.

19
<PAGE> 22

We may also enter into agreements that entitle us to receive a share of
revenue from the purchase of goods and services through direct links from our
Web sites to their Web sites. Such arrangements may subject us to additional
claims, including potential liabilities to consumers of such products and
services, based on the access we provide to such products or services, even if
we do not provide such products or services ourselves. While our agreements with
these parties may provide that we will be indemnified against such liabilities,
such indemnification, if available, may not be adequate. Our insurance may not
adequately protect us against these types of claims and, even if such claims do
not result in liability, we could incur significant costs in investigating and
defending against such claims.

WE EXPECT TO MAKE ACQUISITIONS THAT MAY DILUTE OUR STOCKHOLDERS' INTERESTS IN
LAUNCH OR RESULT IN AMORTIZATION OF SIGNIFICANT AMOUNTS OF INTANGIBLE ASSETS

As part of our business strategy, we expect to review acquisition
prospects that would complement our current content offerings, increase our
market share or otherwise offer growth opportunities. Such acquisitions could
cause our operating results or the price of our common stock to decline. To
date, we have had limited experience in these types of transactions. We may
acquire businesses, products or technologies in the future. Because business
acquisitions typically involve significant amounts of intangible assets, future
operating results may be adversely affected by amortization of intangible assets
acquired. In the event of such future acquisitions or business combinations, we
could do the following:

- issue equity securities that would dilute current stockholders'
percentage ownership in us;

- incur substantial debt; or

- assume contingent liabilities.

WE MAY BE UNABLE TO EFFECTIVELY INTEGRATE BUSINESSES WE ACQUIRE IN THE FUTURE,
AND ANY SUCH FAILURE COULD DIMINISH THE VALUE OF AN ACQUIRED BUSINESS OR CAUSE
DISRUPTIONS IN OUR ONGOING OPERATIONS

Acquisitions and business combinations entail numerous operational
risks, including the following:

- difficulties in the assimilation of acquired operations,
technologies or products;

- diversion of management's attention from other business concerns;

- risks of entering markets in which we have no or limited experience;
and

- potential loss of key employees of acquired organizations.

We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future, and our failure to do so could damage our business.

We may not be able to effectively integrate the operations of acquired
businesses with our ongoing operations. Such failure could harm our business by
diverting management and other resources. Further, the personnel of acquired
businesses may elect not to continue with Launch after completion of any
acquisition, which could diminish the value of any acquisition. In that regard,
we cannot assure you that the personnel of acquired businesses will continue as
employees of Launch.

WE MAY NEED ADDITIONAL FINANCING TO ACHIEVE OUR BUSINESS OBJECTIVES, AND SUCH
FINANCING MAY NOT BE AVAILABLE BECAUSE OF THE CONDITION OF OUR BUSINESS OR THE
UNCERTAIN NATURE OF THE FINANCIAL MARKETS

We currently anticipate that our available cash resources, combined with
the net proceeds from our IPO, will be sufficient to meet our anticipated

20
<PAGE> 23

working capital and capital expenditure requirements for at least the 12 months
following the date of this Report on Form 10-Q.

If we raise additional funds by issuing equity or convertible debt
securities, the percentage ownership of our then-current stockholders will be
reduced, and such securities may have rights, preferences or privileges senior
to those of such stockholders. We cannot assure you that additional financing
will be available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of unanticipated opportunities, develop or enhance
services or products or otherwise respond to competitive pressures would be
significantly limited. This limitation could adversely affect our business.

We may need to raise additional funds in order to do the following:

- fund more rapid expansion;

- develop new or enhance existing services or products;

- fund distribution relationships;

- respond to competitive pressures; or

- acquire complementary products, businesses or technologies.

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for a discussion of
our working capital and capital expenditures.

IF THE USE OF DIGITAL MEDIA, INCLUDING THE INTERNET, DOES NOT CONTINUE TO GROW,
OUR MARKET MAY NOT DEVELOP ADEQUATELY

Our market is new and rapidly evolving. If usage of digital media, and
in particular the Internet, does not continue to grow, our business will be
adversely affected. A number of factors may inhibit such usage, including, but
not limited to the following:

- inadequate network infrastructure;

- security concerns;

- inconsistent quality of service; and

- limited availability of cost-effective, high-speed access.

Even if digital media usage grows, the infrastructure necessary for such
growth may not be able to support the demands placed on it by this growth, and
its performance and reliability may decline. In addition, Web sites have
experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, digital media and, in
particular, Internet usage, as well as the usage of launch.com, could grow more
slowly than we expect or even decline.

WE NEED TO ADAPT TO RAPID TECHNOLOGICAL CHANGE IN SOFTWARE AND DISTRIBUTION
SYSTEMS TO REMAIN COMPETITIVE

Our market is characterized by rapidly changing technologies, frequent
new product and service introductions and evolving industry standards. The
recent growth of digital media, and in particular, the Internet, and intense
competition in our industry exacerbate these market characteristics. To achieve
our goals, we need to effectively integrate the various software programs and
tools required to enhance and improve our product offerings and manage our
business. Our future success will depend on our ability to adapt to rapidly
changing technologies by continually improving the performance features and
reliability of our products and services. We may experience difficulties that
could delay or prevent the successful development, introduction or marketing of

21
<PAGE> 24

new products and services. In addition, new enhancements must meet the
requirements of our current and prospective users and must achieve significant
market acceptance. We could also incur substantial costs if we need to modify
our service or infrastructures or adapt our technology to respond to these
changes.

GOVERNMENTAL REGULATION OF THE WEB RELATED TO COMMUNICATION, COMMERCE, SALES TAX
AND OTHER ISSUES MAY LIMIT THE GROWTH OF OUR BUSINESS AND DECREASE OUR MARKET
OPPORTUNITY

There are currently few laws or regulations that specifically regulate
communications or commerce on the Web. Laws and regulations may be adopted in
the future, however, that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting certain types of
information and content over the Web. Several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet service
providers and online services providers in a manner similar to long distance
telephone carriers and to impose access fees on these companies. Any imposition
of access fees could increase the cost of transmitting data over the Internet.
Moreover, it may take years to determine the extent to which existing laws
relating to issues such as property ownership, libel and personal privacy are
applicable to the Web. Any new laws or regulations relating to the Web could
adversely affect our business.

Launch generally does not collect sales or other taxes in respect of
goods sold to users on launch.com. However, one or more states may seek to
impose sales tax collection obligations on out-of-state companies, such as
Launch, which engage in or facilitate online commerce. A number of proposals
have been made at the state and local level that would impose additional taxes
on the sale of goods and services through the Internet. Such proposals, if
adopted, could substantially impair the growth of electronic commerce and could
adversely affect our opportunity to derive financial benefit from electronic
commerce. Moreover, if any state or foreign country were to successfully assert
that Launch should collect sales or other taxes on the exchange of merchandise
on its system, our results of operations could be adversely affected.
Legislation limiting the ability of states to impose taxes on Internet-based
transactions has been proposed in the U.S. Congress. We cannot assure you that
this legislation will ultimately become law or that the tax moratorium in the
final version of this legislation will be ongoing. Failure to enact or renew
this legislation, once enacted, could allow various states to impose taxes on
Internet-based commerce, which could adversely affect our business.

WE RELY ON THIRD PARTIES FOR OUR WEB SITE HOSTING FACILITIES AND INTERNET
CONNECTIVITY. IF THESE SYSTEMS FAIL, THEY COULD DISRUPT OR DELAY USER TRAFFIC,
WHICH COULD IMPAIR OUR BUSINESS

Substantially all of our launch.com communications and computer hardware
are located at PSINet's facilities in Marina del Rey, California. PSINet
provides Web site hosting services. In addition, we utilize the audio and video
streaming services of iBEAM Broadcasting. iBEAM Broadcasting has a proprietary
network which delivers streaming audio and video over the Internet. Fire,
floods, earthquakes, power loss, telecommunications failures, break-ins and
similar events could damage these systems and cause interruptions in our
services. Computer viruses, electronic break-ins or other similar disruptive
problems could result in reductions or termination of our services by our
customers or otherwise adversely affect our Web site. Our business could be
adversely affected if our systems were affected by any of these occurrences. Our
insurance policies may not adequately compensate us for any losses that may
occur due to any failures or interruptions in our systems. We do not presently
have any backup systems or a formal disaster recovery plan.

Our Web site must be able to accommodate a high volume of traffic and
deliver frequently updated information. Our Web site has experienced in the past
and may in the future experience slower response times or decreased traffic for
a variety of reasons. In addition, our users depend on Internet service
providers, online service providers and other Web site operators for access to
our Web site. Many of them have experienced significant outages in the past, and

22
<PAGE> 25

could experience outages, delays and other difficulties due to system failures
unrelated to our systems. Moreover, the Internet network infrastructure may not
be able to support continued growth. Any of these problems could adversely
affect our business.

BECAUSE OUR USERS PROVIDE US WITH PRIVATE INFORMATION, WE MAY BE SUBJECT TO
LIABILITY IF THIS INFORMATION WERE MISUSED

Our privacy policy provides that we will not willfully disclose any
individually identifiable information about any user to a third party without
the user's consent unless required by law. This policy is displayed to users of
our personalized services when they initially register and is easily accessible
on launch.com. Despite this policy, however, if third persons were able to
penetrate our network security or otherwise misappropriate our users' personal
information or credit card information, we could be subject to liability. We
also rely on a third-party provider for our e-commerce services. If we
experience service problems with our e-commerce transactions, we could also be
subject to liability. This liability could include claims for unauthorized
purchases with credit card information, impersonation or other similar fraud
claims. It could also include claims for other misuses of personal information,
such as for unauthorized marketing purposes. These claims could result in
litigation. In addition, the Federal Trade Commission, the European Union and
certain state and local authorities have been investigating certain Internet
companies regarding their use of personal information. We could incur additional
expenses if new regulations regarding the use of personal information are
introduced or if these authorities choose to investigate our privacy practices.

Like most Web sites, we typically place certain information commonly
referred to as cookies on a user's hard drive without the user's knowledge or
consent. We use cookies for a variety of reasons, including enabling us to limit
the frequency with which a user is shown a particular advertisement. Certain
currently available Internet browsers allow users to modify their browser
settings to remove cookies at anytime or to prevent cookies from being stored on
their hard drives. In addition, some Internet commentators, privacy advocates
and governmental bodies have suggested limiting or eliminating the use of
cookies. Any reduction or limitation in the use of cookies could limit the
effectiveness of this technology.

SECURITY CONCERNS REGARDING CREDIT CARD OR OTHER CONFIDENTIAL INFORMATION
TRANSMITTED OVER THE WEB COULD LIMIT OUR GROWTH

A significant barrier to e-commerce and communications over the Internet
has been the need for secure transmission of confidential information. Internet
usage may not increase at the rate we expect unless some of these concerns are
adequately addressed and found acceptable by the market. Internet usage could
also decline if any well-publicized compromise of security occurred. We may
incur significant costs to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Any such protections may not be
available at a reasonable price or at all. If a third party were able to
misappropriate our users' personal information, users could sue us or bring
claims against us.

WE MAY EXPEND SIGNIFICANT RESOURCES TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
OR TO DEFEND CLAIMS OF INFRINGEMENT BY THIRD PARTIES, AND IF WE ARE NOT
SUCCESSFUL WE MAY LOSE RIGHTS TO USE SIGNIFICANT MATERIAL OR BE REQUIRED TO PAY
SIGNIFICANT FEES

Copyrighted material that Launch develops internally, as well as
trademarks relating to the Launch brand and other proprietary rights, are
important to our success and our competitive position. We seek to protect our
copyrights, trademarks and other proprietary rights, but these actions may be
inadequate. Launch has trademark applications pending in several jurisdictions,
but we cannot guarantee that we will be able to register our trademarks in all
jurisdictions in which we intend to do business. We generally enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and generally control access to and distribution of our
proprietary information. We cannot assure you that the steps we have taken will
prevent misappropriation of our proprietary rights,

23
<PAGE> 26

particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. If third
parties were to use or otherwise misappropriate our copyrighted materials,
trademarks or other proprietary rights without our consent or approval, our
competitive position could be harmed, or we could become involved in litigation
to enforce our rights.

In addition, we rely on a third party to provide services enabling our
e-commerce transactions. We could become subject to infringement actions by
third parties based upon our use of intellectual property provided by our
third-party provider. There is no provision for indemnification of Launch by the
third-party provider. It is also possible that we could become subject to
infringement actions based upon the content licensed from third parties. Any
such claims or disputes could subject us to costly litigation and the diversion
of our financial resources and technical and management personnel. Further, if
our efforts to enforce our intellectual property rights are unsuccessful or if
claims by third parties against Launch are successful, we may be required to
change our trademarks, alter the content and pay financial damages. We cannot
assure you that such changes of trademarks, alteration of content or payment of
financial damages will not adversely affect our business.

ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We maintain investment portfolio holdings of various issuers, types and
maturities whose values are dependent upon short-term interest rates. We
generally classify these securities as available for sale, and consequently
record them on the balance sheet at fair value with unrealized gains and losses
being recorded as a separate part of stockholders' equity. We do not currently
hedge these interest rate exposures.

Given Launch's current profile of interest rate exposures and the
maturities of its investment holdings, we believe that an unfavorable change in
interest rates would not have a significant negative impact on our investment
portfolio or statement of operations through December 31, 2000.

24
<PAGE> 27

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

"Not applicable."

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The net proceeds to the Company from the sale of the 4,010,000 shares of
Common Stock in the Company's initial public offering (Registration Statement
No. 333-72433 and No. 333-76871), effective April 22, 1999, including the
underwriter's exercise of their over-allotment option on May 18, 1999, were
approximately $81,000,000 after deducting underwriting discounts and commissions
and other offering expenses. Our use of proceeds through June 30, 2000 conformed
to the intended use of proceeds described in our prospectus relating to the IPO.
From the date of the IPO through June 30, 2000, Launch has spent $33.6 million
of the net proceeds on sales and marketing, $18.2 million of the net proceeds on
content and product development expenses, $8.1 million on general and
administrative expenses, $6.3 million on capital expenditures and $1.5 million
on acquisitions. The balance of the net proceeds of the IPO have been invested
in investment grade, interest bearing securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

"Not applicable."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

a. To elect six directors to hold office until the next Annual Meeting
of Stockholders and until their successors are duly elected and
qualified. The final tabulation of votes was as follows: 4,461,192
votes for and 6,204 votes abstained.

b. To approve amendments to our 1998 Stock Option Plan to (i) increase
the number of shares reserved for issuance under our 1998 Stock
Option Plan from 2,000,000 shares to 3,200,000 shares of common
stock and (ii) limit to 250,000 the maximum number of shares for
which options may be granted to any employee in any fiscal year. The
results were as follows: 1,203,865 shares voted for, 491,944 voted
against and 16,445 abstained.

c. To approve an amendment to our 1998 Stock Option Plan to provide
that the number of shares issuable under our 1998 Stock Option Plan
is automatically increased on the first day of each of our fiscal
years beginning on and after January 1, 2001 by (i) 3% of the number
of shares of our common stock issued and outstanding on the last day
of the preceding fiscal year or (ii) such lesser number of shares as
determined by the Board of Directors or a committee of the Board.
The results were as follows: 1,064,474 voted for, 631,857 voted
against and 15,923 abstained.

d. To ratify the appointment of PricewaterhouseCoopers LLP as our
independent auditors for the fiscal year ending December 31, 2000.
The results were as follows: 4,454,052 voted for, 3,439 voted
against and 9,905 abstained.

ITEM 5. OTHER INFORMATION

"Not applicable."

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS:

(27) Financial Data Schedule

25
<PAGE> 28

(b) Reports on Form 8-K

No reports were filed on form 8-K during the quarter for which this
report is filed.

26
<PAGE> 29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated August 11, 2000
-------------------

LAUNCH MEDIA, INC.
(Registrant)

/s/ JEFFREY M. MICKEAL
--------------------------------------------
Jeffrey M. Mickeal
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)